State Budget Deficit Leads to Employee Compensation Reduction Proposals as Part of the May Revise

In response to a state revenue reduction of over 30 percent, the Administration is proposing a number of costs savings measures including reductions in employee compensation of 10% from June 2020 levels and proposed reductions in state operations costs (office space, leases, travel, and procurement).

The plans were outlined to labor representatives yesterday in connection with today’s release of the Governor’s “May Revision” to the state budget proposal. CalHR Director Eraina Ortega and Deputy Director Paul Starkey held a call this morning with ACSS Executive Director Rocco Paternoster and ACSS attorney Gerald James to discuss the proposals and impacts for excluded employees.

As part of the budget process, the Administration is seeking to “pull back” all salary increases (general salary increases and special salary adjustments) scheduled for July 1, 2020 for excluded employees and rank-and-file employees. They will also seek authority to reduce employee compensation by 10% effective July 1, 2020.

CalHR will attempt to negotiate the 10% reductions with each rank-and-file bargaining unit. If agreements cannot be reached with those units, the authority sought from the Legislature would allow CalHR to impose two days of unpaid furloughs per month, which would result in a 9.24% salary reduction, on state employees effective July 1, 2020. As of this morning, CalHR intends to link employee compensation reductions for supervisors and managers with their related bargaining units.

To mitigate the impact of any compensation reductions, the state is also considering a pause on state employees paying to prefund retiree healthcare. If passed by the Legislature, relief from excluded employees paying this “OPEB” contribution would range from 4.6% of salary to 1.4% of salary (for the highest paid state employees). ACSS realizes this does not come near offsetting the proposed reduction in take home pay, but it is a helpful mitigating step.

The proposed reductions are based on current economic projections from the Administration. The Legislature makes its own economic projections. The budget authority sought by the Administration will include a provision that if additional federal funding is received (related to the pandemic), these employee compensation reductions can be revisited.

While the employee compensation reduction plan will likely be impacted by bargaining conducted by the rank-and-file bargaining units, ACSS has already begun discussions with CalHR over the details related to excluded employees. ACSS will also seek to ensure that the authority to reduce compensation provided by the Legislature to CalHR is done in a manner that protects the interests of excluded employees as best as possible by ensuing compensation decreases are equitable. We will keep you apprised as these significant budget decisions and proposed reductions move forward.